@ MidemNet: MPAA, RIAA, CEA Execs Clash Over DRM & Hardware Controls

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[By Robert Andrews] This conference on the digital music business got off to a bang here in Cannes this morning when the opening-session discussion broke into a tense and sometimes bitchy disagreement about DRM between representatives from music, movie and electronics industry associations. MPAA executive vice president Fritz Attaway and RIAA chairman Mitch Bainwol immediately set their stall against Consumer Electronics Association president Gary Shapiro. A sample:

Attaway: “Technology should not be expected to respect existing business models, but the people who use technology have a responsibility to respect the rights of intellectual property owners. When one consumes a movie by viewing it, there is some obligation to compensate those involved in making it. It does cost a lot of money to make this product — there is no business model where one invests several million dollars in making a movie and then gives it away for free; that just doesn’t work for movies and it doesn’t work for music, too. Restrictions should not be put on technology, but they should be put on the people who use technology.”

Bainwol: “Technology is not a license to steal and it doesn’t sanitize theft. Technology needs to respect the law. It can challenge business practises [but] there is not an excuse to bypass the rule of law when you build a business model based on theft.”

Shapiro: “Consumers have certain rights to move content around their home. DRM is clearly desired by components of the motion picture and music industries, but consumers have started to revolt against it and you’re beginning to hear it. It’s confusing and resented by consumers. Business models are emerging and major record labels are starting to pick up on this. [If you drop DRM], you’re taking a risk that unethical consumers will spread the content around the world — but that’s a risk you’re going to have to take. … When the law penalizes so much, something is wrong and has to be changed. When consumers are afraid to do something for a school project because they’ve listened to the RIAA disinformation campaign, something is wrong. Consumers are rejecting DRM [because it’s confusing]. Independents and some major labels soon are going to be saying ‘no DRM on our products.’

Responding, Attaway said: “We are investing a lot of time and energy with Gary’s members to improve DRM. It needs to be better. We are all for technological innovations that make DRM more acceptable, allowing consumers to do more with their content but to also protect creators.”

The gloves quickly came off between Shapiro, whose association runs a campaign to brief consumers on what he calls the “facts” about copyright, and the two industry reps. Bainwol said the CEA president, because of his pleas to abandon restrictions and liberalize fair use policies, sometimes resembled “a fringe, ideological leader”: “We are in a very, very significant transition,” Bainwol said. “Technology is the basis of our future. We have to be able to monetise product and, every time we try, you want to make it available for free so people can buy devices. Gary stretches the concept of fair use to the point where the notion of ‘fair’ has been eliminated. You have to protect the market value. [Gary] wants to morph fair use into a concept that justifies any consumer behavior to the point where you eliminate the value of property. Kids grow up not understanding that music and movies are intellectual property. You teach disrespect for intellectual property. Gary takes a concept, morphs it, makes us look like we’re evil.”

Shapiro countered: “I don’t make you look evil – your lawsuits against old people around the country make you look evil. You’re very good at paraphrasing things I never said.”

Attaway: “The CEA has initiated this campaign against DRM which is against a lot of your your own members, who are making great strides in DRM to provide consumers with choices. You’re the one that is trying to stifle innovative technology and we’re trying to use it. Gary is trying to enact laws that limit the use of technology to create new business models.

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Windows XP Music

Consumers have started to revolt against DRM and you’re beginning to hear it. It’s confusing and resented by consumers. DRM is making it difficult to buy and use music.

SEO Company

MPAA & RIAA always want to sue hell out of people. With DRM, they are making it difficult for customers than pirates. They treat customers as thief. Music industry is not suffering revenue loss because of piracy, but their policies.

jafaru yakubu kurfi

How Google’s business model and strategy proven to be successful and the company’s financial performance from 1999 to August 2004

So far, Google’s business model and strategy has proven to be successful. Internet users’ preference for Google’s Search engine have captured hundreds of thousands of accounts with advertisers producing a gross revenue of $3.2 billion in 2004 and profits of $399 million(Gamble 2005,p.C-312). In 2005, Google’s model of business delivered profits of $500,000 per employee in the first nine months of 2005 (Gamble 2005, p.C-312). There is continued growth as we can traced the expansion of advertising based revenue in 1999 with a mere$220,000 to more than $86million in 2001 with a profit of $7million (Gamble 2005,p.C-314). The 2005 revenue is a proof that Google’s model is the right one alright.
Investors should be impressed with the company’s financial performance both in 1999 and in August 2004. The gains for the investors are no small amount.
The revenue growth in 1999 was $200,000. In 2001, Google’s revenue was $86 million. In 2004, $3.2 billion and in 2005, $4.2 billion. There is no doubt that there is a steady increase in revenue collection for Google every year. There is conclusive evidence by the posting of net revenues of nine months statement from 2001 to 2005 (Gamble 2005,p.C-321) giving a positive increase of 50 percent for that period. This is a good sign to most investors but some investors are more interested in the growth rates than just revenues.
Between 2003 and 2004, the growth rate in net income is 377 percent and by year end 2005, Google is poised to achieved 217 percent (Gamble 2005, p.C-312).

jafaru yakubu

What strategic moves do you think Apple’s rivals might take to attract buyers and cut into Apple’s sales of iPods?

Apple’s rivals are likely to use the low cost provider strategy (Thompson et al 2007, p.134) to take away some of Apple’s buyers. This is because Apple’s iPod is still charging a premium price but this is limited to brand conscious consumers. However, as we observed from Creative Technology case, Creative has used aggressive marketing campaign, offering extensive product line with its portable players designed to appeal to consumers’ demand for a fashionable and easy to use music player but it does not have the brand appeal and brand image Apple has. It still failed to capture or draw a large share with the style and fashion conscious market (Marino 2006, p.C121) which Apple has.

Some of Apple’s rivals have used strategic alliances to incorporate product features into their MP3 player to capture more customers. For example, Archos has paired up with broadband video services to allow its customers to access movies and other video files. It has also built in support for online music store. Archos teamed up with Microsoft’s subscription based download service (Janus) to allow users to transfer video and audio files to their portable players. However, Archos products are also priced at a premium which is at par with Apple (Marino 2006, p.C121).

Dell’s direct sales strategy and keeping retail intermediaries out, keeping its price down is Dell’s hall mark. Dell applied the same strategy to the MP3 market with is Dell DJ (Dell Digital Jukebox) which is a personal portable MP3 player. Dell’ advantage lies in that its users can download music from the internet, or ‘rip’ tracks from the CD collections they owned. In its market research, Dell discovered that a prominent button for volume control is lacking in many competitors players, so it makes that a feature in Dell DJ.
Though Dell DJ is not aesthetically good looking or easy to use, it is still a serious contender to Apple’s iPod (Marino 2006, p.C122). Dell has considerable brand strength in the market due to its strong brand image in the computer line, the same way Apple was created. With better product features and a much lower pricing strategy, Dell DJ just could capture a substantial market from Apple’s iPod.

iRiver Inc. has good experience in many portable devices and at one time produced the world’s thinnest MP3 compatible portable CD player. iRiver had strategic partnership with the world’s largest computer and electronics industries such as Microsoft, Samsung, Philips, Hitachi, Texas Instruments.(Marino 2006,p.C122). These are formidable partnership that can gives considerable values to iRiver Inc. iRiver is particularly strong in Asian countries with 46 percent preferring iRiver brand(Marion 2006). Another strategic partnership or alliance, iRiver did recently with Soundbuzz, an online music provider is to allow its users access to a wide selections of songs ranging from American,Mandarin and Canto pop music, clearly an indication of maintaining its lead on the Asian countries.
The more serious note is that the management of iRiver has now focus on competing head to head with Apple as shown in its advertisement(Marino 2006,p.C122) and this is a serious contender in the Asian markets against Apple.

SanDisk entered the MP3 player industry through an integration strategy. SanDisk is the world’s leading manufacturer of flash memory data storage products that are commonly used in digital music players.
SanDisk used its strength to design small and light MP3 players, a key feature of Apple’s iPod. At the same time SanDisk used partnership strategy to partner with Rhapsody, Audio feast and Audible to give access to Rhapsody’s songs library, Audio Feast commercial free digital radio service, and Audible’s digital audio books, radio programs and newspapers (Marino 2006,p.C.123). SanDisk is a very serious contender as it has the leading edge in memory manufacturing and integrating into MP3 player is only a natural extension giving it the lower cost leadership edge. With strategic partnerships and integration strategy, SanDisk is well posed to capture a substantial portion of Apple’s share.

Blastfemur

Bainwol said:

"Kids grow up not understanding that music and movies are intellectual property. You teach disrespect for intellectual property…"

Hmmm…and the millions of "kids" uploading their content to YouTube and masses of other online services are just what, throwing their monetized transactions away for free? They're not using DRM.

Talk about being disassociated from the market. If that's the case, then P2P sharing of lousy, overproduced, overbudget films from Hollywood, and talentless lip syncing pretty people from the RIAA base only proves the point of how valueless these products really are.

Kids growing up an digitizing their own homemade and sometimes awesome amateru content know better than the MPAA and RIAA about intellectual property.

Charles Martin

Check out http://www.digitalfreedom.org, it provides a better understanding of why things should not be as black and white as the recording industry paints them to be. Its obvious things will not remain stagnant as the recording industry hopes–they too will have to change with time. Their current actions are merely tactics to maintain as much control of things as possible.

Brandon

Quote: "This isn’t even really a fair use issue. When I buy a product, it’s mine. It belongs to me. It’s MY property. I’ve paid you for it, it no longer belongs to you. This IP nonsense is bologna. Once I’ve bought something from you, it’s mine, and you cannot tell what I can and cannot do with it. Whether I can put it in a different format or play it on a particular media player or make copies of it or share it with a friend is not up to you, because the product no longer belongs to you."

But this IS a fair use issue. When you buy music or the rare movie online it comes with DRM "protection." DRM is designed to limit what you can do with what has become YOUR property. This is most evident with Hollywood. The reason you DON'T see many of the newer, hotter movies on iTunes is because Apple's DRM scheme is too LAX(yeah, that's right, I said TOO LAX). But don't take my word for it, read what the movie studio exec said.

[url]http://businessweek.com/print/bwdaily/dnflash/content/jan2007/db20070112_399642.htm[/url]

DRM's sole purpose is to maximize revenues for the big media companies by minimizing your rights so that they can sell those rights right back to you. You want to change formats? Pay extra. You want stuff to play on multiple devices? Pay extra. That is the business model that they want YOU to live by. Yes, that's right the more people that buy from iTunes are the ones that are willingly giving up their rights, allowing DRM to become a behavioral modification on their lives that "allows THIS, prohibits THAT, monitors YOU, and expires WHEN." Any one who has followed the lawsuits, the reports on DRM, and the fair-use advocates that are called "pirates" knows that the war continues for the rights that are now being happily thrown away for somebody's bottom line.

Quote: "It’s good to see the CEA taking on the EntertainmentIndustrialComplex. My only question is “Where have you been!?!?!?”. You’re ten times the size, economically, that they are, yet you’ve rolled over on the DRM issue at practically every opportunity. There’s an awful lot of my disposable income that you’re not getting by continuing to kowtow to every whim and pipedream of the Hollywood DRM machine in the devices you crank out."

Where have they been??? They've been trying to keep up with the DRM schemes that Hollywood cranks out just to keep their products OPERATING, that's where they've been. Noone wants consumer electronics that won't play and display their favorite HD movies. (Wait, display you say? I'll get to that.) I'm sure they've been so busy making sure everything works that it has taken some time to figure out what is going on and now they're fed up with it. The only thing is the RIAA and the MPAA weren't expecting such a backlash from someone that, to them, seemed to be a quiet acceptor of DRM.

Does it stop there? No.

Now, these big media companies want (and are putting forth legislation for) broadcast flags for satelite and HD radio, more infringment on your rights. But trust me, it gets better. HDCP (High Definition Content Protection) is a DRM scheme known as "Digital Output Protection Technology" or in otherwords, output from HD players such as HD DVD and Blu-Ray players as well as gaming consoles (like the beloved PS3) are being encrypted with a scheme that is FLAWED. Why? Simple, content protection systems are becoming more complex and even more pervasive. The biggest problem with this one is that it sometimes decides that your HDTV can no longer "protect" the encrypted signal, thus either your sound will no longer be heard or the video itself will stop getting displayed. And this is what is coming out more and more even though it is flawed. Thus, the masses are now essentially beta testing DRM schemes all without their knowlegde.

Don't believe me? Get educated, do your research, know what DRM is, what it does, and what it keeps you from doing. Know what the DMCA says, what it outlaws and why copying your DVDs to your computer is actually illegal activity.

LMGM

Interestingly enough, there was a pretty significant copyright brouhaha in the mid-1800s, as composers began to make sheet music sales their primary source of income (rather than lump-sum payments from patrons, or performing fees). Music printing houses all over Europe would cheerfully reprint the music of other composers without compensation–especially those who were based in another region of Europe. As a result, certain composers like Liszt and Chopin devoted a lot of time and effort into securing protection for their works all over Europe, usually by selling the exclusive printing rights to one printer per region, who would then protect his work in that region.

Of course, the sheet music industry now is a mere shell of what it once was, thanks to the recording industry.

Anyway, I just wanted to point out that these issues have been around as long as notions of music as property.

epp_b

["you’re going to have to bend way over backwards to make that make logical sense. buying it and transfering it removes money from the transaction from the entertainment industry and sends those dollars back to CEA companies"]

Only because they've invented an extortionate business model and written their own copyright laws via the DMCA to prop it up. Copyright law is not a moral issue, it didn't come down from a mountain on a stone tablet. It's a utilitarian law created as a safe-guard to society and an incentive to artists. If they've created a business model based on old physical and technical limitations that don't exist any more, that's their problem.

Like I said: technology supersedes copyright (because copyright is inherently technological), media industry needs to adhere to that technology or go broke. End of story.

This isn't even really a fair use issue. When I buy a product, it's mine. It belongs to me. It's MY property. I've paid you for it, it no longer belongs to you. This IP nonsense is bologna. Once I've bought something from you, it's mine, and you cannot tell what I can and cannot do with it. Whether I can put it in a different format or play it on a particular media player or make copies of it or share it with a friend is not up to you, because the product no longer belongs to you.

End User

DRM is a waste of time and processor cycles. I won't buy DRM music or video no matter what, and nothing that Fritz Attaway says is going to change that. Fritz, Mitch- you guys just don't get it, do you?

FWIW, there's some occasionally spirited coverage of DRM on http://discoverseattle.net/forums . They hate DRM with a passion there.

Mike

Attaway and Bainwol are idiots who don't understand technology, consumers, or or fair use, and who simply want everyone to pay endlessly for everything- even if you already own it. Their model is "pay and pay again", with never an end in sight. They're doomed and they don't even know it. Yet.

Mike
http://quicktrivia.com

dillo

It's good to see the CEA taking on the EntertainmentIndustrialComplex. My only question is "Where have you been!?!?!?". You're ten times the size, economically, that they are, yet you've rolled over on the DRM issue at practically every opportunity. There's an awful lot of my disposable income that you're not getting by continuing to kowtow to every whim and pipedream of the Hollywood DRM machine in the devices you crank out.

If I were a shareholder of an MPAA or RIAA member company I would be leading the charge of a shareholder lawsuit over the amount of money that's been spent on DRM and suing grandmothers over MP3s. That's an awful lot of money that could have been spent on R&D into new business models and trying to grow the business. Instead, it went into some lawyer's pockets. Shapiro is right, you make yourselves look evil. Nobody needs to demonize you, you do it to yourselves.

Chris

>> Why won’t the manufacturers who create these devices offer to give them away for free? Isn’t that similar to what they’re asking of the recording industry? You can’t suck and blow at the same time now, can you?

Um, in a word. no.

CEA are asking the RIAA to make songs available for theft in EXACTLY the same way that Consumer Electronics are available for theft.

You can easily walk into a store and walk away with an MP3 player, or a DVD player. There is no technology built into the player to ensure that it only works when purchased through manufacturer approved channels. The vast majority of transactions for CE devices are legal, and they recognize that.

The RIAA wants there to be no possibility for you to be able to steal their product, even though the vast majority of use of their product will continue to be legal. They want to completely obviate fair use. They want you to have to purchase the same song to be played on your iPod, your Zune, your CD Player, your DVD player, etc.

The law has explicitly supported my ability to listen to the same song on any device in my house assuming I've actually acquired it legally. The RIAA is taking that ability away because you can steal their "property".

Yes. Theft is wrong. Theft is possible. But the cost of theft gets wrapped into the final price of the product in Consumer Electronics… why not do it for Music/Video as well? (Hint: they already do)

Gerra

(snip)
you’re going to have to bend way over backwards to make that make logical sense. buying it and transfering it removes money from the transaction from the entertainment industry and sends those dollars back to CEA companies.
(snip)

I highly suggest that, before you take that sort of swipe at another poster, you do a bit more research so that you can at least comprehend the relevant points being made.

For starters, I suggest that you do a bit of reading on fair use doctrine in the United States. If you don't live in the US, that is fing, but as we are discussing the MPAA and the RIAA, US copyright laws and practices are relevant.

In short, under US copyright law, I have the legal right to make backup copies of any media I own. I also have the legal right to encode any CD or movie that I own into any format I choose and play it in any device that I own. The law is quite clear on this point.

Unfortunately, the DMCA added a nasty anti-circumvention measure to US copyright doctrine. This means that, though I can legally make personal copies of a DRM'd disk, I cannot legally bypass said DRM. This catch-22 situation is what fills many would-be digital pioneers with rage.

In the long term, this is all irrelevant. The market will win in the end. The sad irony of DRM is that it actually makes pirated content more flexible and potentially higher quality than the legitimately purchased product. I cannot buy an HD-DVD or Blu-Ray disk and expect it to play on my PC or my 4 year-old high definition screen, but if I were so inclined I could go and download any of the high-def dvds that have already been cracked and play them on those very same systems. This is a pretty trivial conclusion for any marketing drone reach, so I can't for the life of my understand why the MPAA would be blind to this dynamic. I can't bring myself to believe that they would intentionally rig the market so blatantly in favor of piracy.

Brian

If, in fact, the RIAA business model was not about theft, the lawsuits that have been subjected upon the American public would be for a realistic amount. There is documented evidence of the RIAA suing people for tens of thousands of dollars, people who are accused of "stealing" tens of songs. (Which undoubtedly play tens of times a day on radio stations across the U.S.) An individual song file, based on prices found all over the internet, is worth maybe a couple of dollars. In a realistic and fair proceeding, the plaintiff seeks fair reparation for losses incurred. The RIAA has not in fact suffered tens of thousands of dollars of loss for each file that an individual may have downloaded from an internet site or from a peer. (Again, this "intellectual property" is played over the radio and on television and on many corporate web sites all day long)

In a civil proceeding, the rights of an individual who cannot afford a lawyer are nonexistent. There is no provision for the protection of the "attorney challenged" in a lawsuit. This is a violation of the spirit of the Constitution of the United States of America.
If in fact the people targeted in the lawsuits have committed theft, they should be prosecuted in a criminal proceeding, where their rights are protected by federal law and the Constitution. Innocent until proven guilty is a basic tenet of the American way of life. It is patently impossible to prove that you have never downloaded a file from the internet. The very nature of the internet makes it impossible to prove that you never stole any intellectual property. (The whole tube thing notwithstanding) The very fact that the RIAA does not solely implement criminal prosecution in its campaign against these so-called thieves, but instead levies five digit "fines" for the accused theft of several whole dollars worth of merchandise is in effect a criminal act. It is extortion at a base level. If you own a computer, have paid for internet access, and are on their list, you must pay them their money, or pay much much more in legal fees. You can pay this extortionate price (to avoid further harassment, as in dealings with local "protection" rackets put forth by the mafia and the yakuza of legend) or you can sell your house and take potentially weeks off of work to go to court to defend your innocence. The RIAA is a dinosaur, and I feel that everyone who has been named in a lawsuit by the RIAA should join a class action suit to have the attorneys and company officers prosecuted in civil court for extortion and gross violation of civil rights.

Sean

(…there is not an excuse to bypass the rule of law when you build a business model based on theft.”)

Oh please, that has been the music industry's main MO for decades, just ask the artists, like Prince, or Dan Fogerty, or countless others. Artists have been being ripped off for quite some time by that crowd.

In the future, there will be no DRM, because artists will bring their own product to market themselves, without major corporations as the middlemen. The majors are pushing DRM because they need some justification for staying in the loop, as the "protectors" of artists' property rights. What a very sick joke.

user

The unique and wonderful thing about digital content is that it can be moved around easily to different devices and to different formats. DRM seeks to predictably inhibit this exact freedom and thats is why consumers hate it.

————-

you're going to have to bend way over backwards to make that make logical sense. buying it and transfering it removes money from the transaction from the entertainment industry and sends those dollars back to CEA companies.

Jason

The unique and wonderful thing about digital content is that it can be moved around easily to different devices and to different formats. DRM seeks to predictably inhibit this exact freedom and thats is why consumers hate it.

DRM free products like the CD and MP3 are what started this revolution. Any 8 year old can crack the DRM on a dvd. Thus now DVD's are essentially DRM Free at this point.

That being said its obvious that almost all digital content purchased today (well over 90%) is DRM Free and yet the content industries are THRIVING.

I hate the MPAA and RIAA as much if not more than the next guy for their lawsuits and their obvious lack of humanity, but what really gets to me is their ability to get anyone to believe that they can't survive in a world without DRM when they are doing it right now.

getting off my soapbox now… I have to go copy my newest cd to my ipod in MP3 format now :)

epp_b

When technology supersedes copyright, copyright changes. End of story. We shouldn't even be having this argument.

The history of copyright is this:

1. New technology is invented
2. Existing content industry blows it off and calls all of its users dirty pirates
3. Technology out-paces current content industry and *becomes* the current industry
4. Most of those who blew it off spend the rest of their lives working in burger joints because they were too blindly stupid and ignorant to realize that the technology they tried to suppress was actually their future.

Wash, rinse, repeat.

Sigh.

Kevin

Information wants to be free!!!

In the end it's all just a bunch of one's and zero's!!!

This is true democracy. Must I remind everyone that the the bussiness model that both sides are trying to adhere to is only 50 years old. Now for the first time this bussiness model is very outdated. As far as I'm concerned capitalism in this form is outdated as well. But, a solution for both sides lies in advertising generated revenue and in the future both sides will be forced to realize this. I think both sides are right and both sides are wrong. I just hope that the corporate elite stop from infringing on peoples rights inorder to capitalize on them. yeah right. thankx for reading my comment.

Russell McOrmond

Before people go on with the "theft is theft" nonsense, please realize that DRM by definition infringes the property rights of the owners of technology.

http://www.flora.ca/documents/digital-ownership.html

Moved from science fiction to the actual science of how "DRM" works, it is not clear who Bainwol was referring to when he said that, "there is not an excuse to bypass the rule of law when you build a business model based on theft". This sounds to me like those new business models based on DRM that Attaway talks about later.

DRM doesn't (and is incapable of) stopping copyright infringement. It can only circumvent the rights of citizens, and allow dishonest businesses to then extract money by "selling back" those rights to people.

LarsG

"The labels have NO OTHER option."

I guess I'll continue to buy my music from emusic.com then, and wait until the major labels either collapse or realize that there are lots of people out there that is willing to pay for non-DRMed content.

"Bottom line, theft is theft."

The point the majors are missing is that heavy DRM is adding to the problem. If customers can't use the media they buy in ways they consider to be fair (f.ex. region lock on DVDs, iTunes 5 device max, not to mention all the craziness in HD-DVD, Blu-Ray, CableCard and Windows Vista) they will opt for non-DRM'ed media. And the main source for that today is unfortunately P2P.

I want to see creators compensated for their work, but putting heavy limitations on users and consumer electronics manufacturers is not the right path.

Mark N

Why won't the manufacturers who create these devices offer to give them away for free? Isn't that similar to what they're asking of the recording industry? You can't suck and blow at the same time now, can you?

Having said that, this Mexican stand-off will remain as such until both sides are able to find a comfortable compromise to work in concert with as opposed to against each other.

The consumers are merely caught in the middle of all of this psychobabble rap. Bottom line, theft is theft.

Randy FX

this battle will go on for years.
it's WRONG to blame record companies for suing people who rip off their copyrights.
The labels have NO OTHER option.

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